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As the popularity of contract staffing solutions continues to grow, the question for many recruiters is no longer “Should I offer contract staffing?” but rather “How do I get started?” Along with getting job orders and identifying contract candidates, one of the most important steps is deciding how to handle the back-office tasks associated with employing the contractors. There are two options:

In-House:  Hire the contractors as your own W-2 employees.

– OR –

Outsource: A contract staffing back-office service handles W-2 employment.

In this article, we will focus on the first option: Offering your own in-house recruitment back office solutions.

Getting Set Up

If you are considering running your own, in-house back-office, be aware that there are a number of ramp-up tasks to perform and critical decisions to make before you can start taking contract placements, including:

  • Payroll Funding. Will you fund your own payroll or outsource the funding? Keep in mind that you must pay contractors on a regular (weekly or bi-weekly) basis, and payroll must be processed before most clients ever pay an invoice for the man-hours worked. What if a client suddenly stops paying invoices or they are a slow pay? If you are funding your own payroll, this can be devastating.
  • Collecting Timesheets and Processing Payroll. How will you collect and track timesheets from contractors? Which payroll system will you use? Who will be responsible for actually processing the payroll, and who will be that person’s back-up in case of emergencies? Payroll is a critical, time-sensitive task. Delays or inaccuracies in payroll can damage your firm’s reputation faster than almost anything.
  • Invoicing and Collections. What system will you use to invoice clients for the man-hours worked? How will you verify the accuracy of the information?  How will you handle expense reimbursements? How will you monitor and follow-up on unpaid invoices to ensure you recoup the money you have already spent in payroll and expenses?
  • Certificate of Insurance. You need to secure sufficient liability insurance. Clients may ask to see your certificate of insurance and require certain levels of coverage before they will use your services.
  • State-Specific Considerations and Tax Filings. Your firm must register for applicable taxes, state unemployment insurance, Workers’ Compensation insurance, etc. There are fees and reporting requirements tied to many of these tasks. The payroll taxes you withhold each pay from the W-2 employees must be remitted and filed to the various tax agencies. You must also verify different state laws for things like mandatory sick time, disability funds, etc.
  • Employee Benefits. Don’t buy into the myth that contractors don’t get or expect benefits. Benefits are especially important now that the Affordable Care Act requires most Americans to carry healthcare insurance. Benefits can be crucial to attracting and retaining contractors. How will you secure a quality contract employee benefits package? Can you get group rates?  How much will you contribute to the cost of each employee’s health insurance?
  • Contracts. Legal contracts with both the contractor and the end client are critical to define the relationship and establish the duties of each party.  You will need an employment attorney to draw up these agreements.  Clients are concerned with co-employment liability, so this needs to be clearly documented. 

Liability Issues to Consider

Along with the initial set-up tasks, you are taking on a significant amount of potential risk and liability when you run your own back-office. Employment regulations are growing on the federal, state, and even local level, making it increasingly difficult to stay compliant. It is important to have experienced human resource (HR) professionals on staff to handle compliance issues, including Equal Employment Opportunity responsibilities (EEO), COBRA, IRS, Immigration (Form I-9 and E-Verify), along with the traditional issues that come with any employer/employee relationship.

Failure to comply with employment laws may result in government audits, employment lawsuits, and other stressful tasks that take time and money, not to mention the impact on your firm’s reputation. Even if you are doing everything right, having to defend yourself in an audit or lawsuit can be very expensive and disruptive to your business. 

Time and Resources

The set up process for an in-house back-office can take several months. Once you are up and running, there are ONGOING tasks to complete on a daily, weekly, monthly, and annual basis, such as the aforementioned payroll and tax issues and the on-boarding of employees. Then there are the numerous issues that arise when you least expect them. Do you have the time and resources needed? More importantly, is this the best use of your time and resources, or would they be better utilized on revenue-producing tasks (i.e. actual recruiting)?

Outsourcing the Back-Office

Again, the other option is to outsource the employment of your contractors to a contract staffing back-office service.  Outsourcing this responsibility can allow you to get started with no ramp up time, no additional staff, and no upfront financial investment. However, you should do your proper due diligence to select the right back-office service for your firm. In our next blog article, we will look at the top 10 questions to ask potential contract staffing back-office providers.

This general summary of law should not be used to solve individual problems since changes in fact situation may require a material variance as to the applicable law.  This article is for information purposes only and should not be construed as legal advice.

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